Is Big Pharma Losing Their Muscle?

29th May, 2017

Conventionally, working your way to the top is way easier than maintaining the position up there. Many forces, legitimate or not, work towards beating you for that coveted position. Individuals, small business enterprises, and even the multinational corporations are subject to this process, which seems to be part of a life curve. There is a time you are at a boom and others in a recession. Now with the daily new technologies, a case of being overtaken in whichever field is no shocker. If you can’t keep up, you just relent and let those who can take the mantle and the cycle continues. The same is happening to Big Pharma, previously the world’s biggest drug makers.

Big Pharma was a giant renowned in the pharmaceutical and biotechnology field. Unfortunately, they are losing their grip on the pharmaceutical market. They no longer have the muscle and command they used to have. Over time, they have found it difficult to charge high prices for their medications as depicted by their latest quarterly results. To close up this gap, they have increased the pressure to propel their sales volumes and also strive to develop new profitable treatments for the markets with these gaps. However, they are finding it challenging to adapt since they were used to operating in an environment where they solely determined the prices of their medication anyhow and anywhere they wanted. Most surprisingly, people still paid for it willingly but things are now changing.

The change has been attributed to the knowledge that the big companies paying for drugs are expanding and growing day by the day. Myriads of collaborations among insurers and pharmacy management have left the drug makers at the negotiation table with other influential payers. This has resulted in them being drained money by insurers and pharmacy benefit companies, reducing their profits irrespective of their list prices for medication that is on the rise. The negotiating power of these payers has been consolidated and has since increased to the extent that they can now counter pharmaceutical firms on their price.

The Payers’ Effect

The initiative came about as a result of the public outcry over the rising prices of medication. For instance, Top Executives from Mylan NV, a company that makes the allergy shot EpiPen, and also Valeant Pharmaceuticals International were both summoned before Congress to explain in a detailed manner what they charge for their drugs.

The current environment has favored the development of cheaper drugs. As a result, payers are now enjoying at the expense of drug makers since a generic drug could easily be used in place of a branded version that costs more. Unfortunately, the pressure on pricing is shifted to the crowded diseases like diabetes. Drug makers like Merck & Co., Eli Lilly &Co., Johnson & Johnson, and AstraZeneca have publicly admitted of the slowdown for diabetes drugs attributing it to the price pressures. They claim that the payer’s effect in the market is way greater than they had initially anticipated.

Who is to Blame?

The increased pressure could make less common disease areas like cancer more attractive for drug makers to maintain their influence. Here, there is little or nothing the payers can do. Hence, investors in the pharmaceutical sector are pushing the companies to double up on cancer and rare diseases. It’s worth noting that drug makers have accepted the blame for the high prices that have upset both the users and legislators, but they claim they are not solely to blame. Some of these companies encourage high prices for the sole purpose of increasing their rebates.

The existence of the payer factor has mainly affected the pharmaceutical market since their influence and push-backs have limited the companies’ ability to raise prices at will. For this reason, drug makers are rigorously emphasizing on sales volume so that they can steal the focus from pricing, which the payers are so adamant to bargain and reduce. Some firms have reported increased revenues that are all attributed to higher sales volume and not the price. However, it’s slowly creating alarm whether volume growth is sustainable since it is known for a fact that value-based pricing is the ultimate solution.

The pricing controversy is leading to heated debates and actions in the drug industry. For instance, it is said that Marathon Pharmaceuticals walked out on Washington’s lobbying group over issues regarding the high price of its rare-disease drug. The company had made it public knowledge that it would charge $89,000 a year for the Emflaza drug whereas the generic versions of the same drug were going for roughly $1,000. More so, PhRMA has begun its review of its membership criteria following the decision by Marathon to overprice its drug, Emflaza, which faced harsh criticism from patients, lawmakers, and other industrial payers. In response to the price outcry of the drug, Marathon Co. ultimately consented to sell the drug to PTC Therapeutics for $140 million and additional payouts based on annual sales.

PhRMA is an umbrella for most of the world’s biggest drug makers. Among its responsibilities is the addressing of questions or queries over the prices of drugs in America. The group and its members have been more of the authority that watches companies that try to introduce expensive medications without prior relevant medical advances.

Big Pharma has provided a platform for the development and discovery of new and active components and also hi-tech machines to assist in the refining of the next generation drugs that are world-changing and way more effective than the generic treatments in existence today. However, their exorbitant pricing mechanism offends the greater part of the American people. They are profit oriented rather than being patients-oriented. Failure to control their pricing on medications will lead to the over-exploitation of the common citizens of the U.S. Hence, the initiative by the sitting president to have a face-off with them is highly welcome.